Massive Budget Deficit Predicted For Saudi Arabia This Year

The International Monetary Fund is predicting that Saudi Arabia will see a massive budget deficit this year as oil prices stay well below previous highs. The sharp decline in oil revenues will result in a budget deficit of 20 percent of gross domestic product for the OPEC kingpin. The IMF is predicting that the country will see nominal GDP at $649 billion this year, translating to a deficit of around $130 billion.

After a visit to the Gulf kingdom, an International Monetary Fund team said. “Government spending in 2015 is expected to remain strong, partly due to a number of one-off factors, while oil revenues have declined.” The team continued, “As a result, IMF staff projects that the government will run a fiscal deficit of around 20 percent of GDP in 2015.” However, the authorities in Saudi Arabia are predicting a budget shortfall of just $39 billion, significantly lower than the IMF prediction.

The decline in oil prices has resulted in a substantial decrease in revenues for the country. In June of last year, the price of oil was around $115 a barrel. Those prices crashed to just $46 in January before recovering to around $65. Income from oil sales makes up more than 90 percent of Saudi public revenues. The country is currently the world’s largest exporter of oil, pumping 10.3 million barrels of crude per day.

The IMF team projects Saudi growth this year to reach 3.5 percent, unchanged from 2014. However, that growth is expected to slow to 2.7 percent in 2016. To correct the imbalance will require sound fiscal policy from the kingdom over the next few years. This would allow Saudi Arabia to cut its deficit gradually. The IMF report said, “Going forward, the decline in government deposits will slow as the government starts to issue debt to finance the deficit.”

Increased public spending has so far blunted the impact of the lower oil prices on the rest of the economy. However, the fact that the decline in oil revenues have affected the country’s financial situation so dramatically underscores the need for Saudi Arabia to diversify its economy and make spending more efficient. The costly air campaigns conducted by Saudi warplanes against the Islamic State group in Syria and Huthi rebels in Yemen were not referenced in the report.

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